When is Refinancing Worth it?
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Some have said that only if your new interest will be at least two points under your current rate, should you refinance your loan. Perhaps several years ago that was good advice, but since refinance costs have been falling recently, it could be a good time to look into it. Refinancing your loan has a variety of advantages that often make it worth the up-front expenditure a few times over.
Benefits from Refinancing
When you refinance, you could be able to reduce the interest rate and mortgage payment , perhaps by a lot. Additionally, you might be given the option of pulling out some of the equity in your house by "cashing out" a sum of money to remodel your home, consolidate debt, or plan a special vacation. With reduced rates, you might also be able to build up home equity more quickly by moving to a shorter term loan.
All these advantages do cost something, though. When you refinance, you are paying for many of the same things you were charged for at the time you obtained your original mortgage. These might include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
Do the Math
Paying discount points can result in a lower interest rate. Your savings on the life of the loan may be substantial if you have paid up front about 3% of the new loan balance. You might hear that points can be tax deductible, but as tax regulations are difficult to keep up with, please consult your tax professional before considering this in your calculations.
One more expense that a borrower may take into account is that a reduced interest rate will reduce the interest amount you will be able to deduct from your federal income taxes. We can help you do the math! Call us at (207) 571-8034.
In the end, for most borrowers the total of up-front costs to refinance will be made up soon in monthly savings. We can help you figure out your options, considering the effect a refinance might have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at (207) 571-8034 to get you started.
Want to know more about refinancing? Give us a call: (207) 571-8034.